NAIROBI, Kenya, Oct 12- As East African regional currencies continue to come under attack, the bloc is now applying a coordinated approach to tackle the twin problem of double digit inflation and volatile foreign exchange markets.
Central Bank Governors from Kenya, Uganda, Rwanda and Tanzania met in Nairobi on Wednesday to chart the way forward on the problem that is impacting negatively on the bloc’s economic growth.
“Prof Njuguna Ndung’u (Central Bank of Kenya), Prof Benno Ndulu (Bank of Tanzania), Prof Tumusiime Mutebile (Bank of Uganda) and Amb Claver Gatete (National Bank of Rwanda) met in Nairobi on October 12, 2011 to deliberate on the current economic developments regarding inflation and exchange rate in the region,” a statement from CBK said.
The governors heaped blame for the run-away inflation and depreciating currencies facing the countries on several factors that are both internal and external to the bloc.
“The pressures for the currencies to weaken result mainly from the widening of the current account deficit originating from rapid expansion of the oil import bill and imports for infrastructure development,” the statement signed by Prof Ndung’u read.
“In addition, the exchange rate volatility has been due to the effects of the Euro sovereign debt crisis and currency speculation activities,” he went on.
Kenya’s inflation rate climbed to 17.32 percent in September while Uganda was at 24 percent. In August, Tanzania’s (inflation) rose 14.1 percent sending shivers in that market and forcing the Bank of Tanzania to take drastic measures such as twice cancelling the selling of Treasury Bonds.
While Rwanda’s inflation has been in single digit all year, it has been on a steady rise driven by an increase in the cost of housing, water, electricity, gas and other fuels.
This state of affairs has exacerbated the regional units’ standing and sent them sailing in uncharted territory.
The Central Banks have been slow to intervene putting the currencies under more pressure.
This is despite their knowledge of the existence of speculators and in the case of Uganda the abuse of fiscal and monetary policies.
In Kenya for instance, actions such as injecting dollars into the market have had little impact in firm up the shilling. Further, while many have welcomed the recent CBK move to raise the base lending rate by a staggering four percent to 11 percent, many have criticised for in equal measure for stepping in a little too late.
The Kenyan shilling has defied attempts to shore it up hitting historic low of 107 to the dollar as the government continues to appear helpless.
The market will be watching to see what impact the latest move to have a synchronised approach to handling the twin crisis will have.